16.2 Past accessions and FDI

The impact of EU enlargement on FDI inflows has varied according to industry. The liberalization and harmonization of the regulatory frameworks has particularly facilitated FDI in service industries, while most manufacturing industries have continued to integrate along the paths established during the 1990s.

We undertook a simple analysis of the changes in German FDI flows to new member countries after past accession rounds, namely Greece in 1981, Spain and Portugal in 1986 and the EFTA countries in 1995.2 The pattern of FDI from Germany to the new member countries in the 1980s was plotted separately for manufacturing and non-manufacturing, and indexed to the pre-accession year of 1984. We then compared this index across host countries for the years following accession . Figure 16.1 was calculated on the basis of German FDI to all EU member countries for which data were available (Deutsche Bundesbank annual statistics).

Figure 16.1: German FDI flows to South EU accession countries. Source : Deutsche Bundesbank (annually).

The breakdown of FDI flows to the Southern EU countries upon accession shows the following trends:

• In general non-manufacturing FDI grew faster than manufacturing FDI.

• In Spain and Portugal, after accession non-manufacturing FDI accelerated substantially faster than the EU-wide trend for nonmanufacturing FDI. The growth of manufacturing FDI was also above the EU-wide trend, but its acceleration appears to be less linked to accession.

• In Greece, the growth of FDI from Germany slightly exceeded the general trends in the early 1980s and then closely followed the overall trend for both manufacturing and non-manufacturing.

This means that accession had a substantial effect on Spain and Portugal in the late 1980s, but there was a smaller impact on FDI flows to Greece in the early 1980s. We conducted a similar analysis for countries that joined the EU in the 1990s. Their FDI inflows closely followed the general trend around the time of entry. FDI to Sweden accelerated above the general trend in both manufacturing and non-manufacturing in the early 1990s and again in 1999, but this cannot be directly linked to its accession in 1995.

These trends indicate that EU membership may create opportunities for accelerated integration via FDI, notably in service industries. Yet these effects are unlikely to emerge immediately upon accession, but will develop gradually before and after that date. Bevan et al. (2001) even argue that commitment to accession is more decisive to FDI flows than actual accession. In the following section we review differing theoretical perspectives on the relationship between FDI and such underlying factors.